FinancialMarketsChap28

FinancialMarketsChap28 - Financial Markets Chapter 28 Key...

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Financial Markets Chapter 28 Key Terms and Key Points Key Terms: At-the-money option – An option for which the strike price is equal to the current asset price Cash and carry trade – Strategy in which a futures contract is sold, funds are borrowed for a period of time equal to the settlement date of the futures contract, and the underlying for the futures contract is purchased with the borrowed funds Cost of carry – The net cost of financing a position in an asset; that is, the difference between the cost of financing a position in an asset and the asset’s cash yield Financing cost – In the pricing of a futures contract, the interest rate for borrowing until the settlement date In-the-money option – An option that has intrinsic value Intrinsic value – The component of an option price that reflects its economic value if it is exercised immediately Negative carry – A net financing position in which the financing cost is greater than the cash yield earned on the asset Net financing cost – The difference between the cost of financing a position in an asset and the
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This note was uploaded on 01/27/2010 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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FinancialMarketsChap28 - Financial Markets Chapter 28 Key...

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